The construction industry is big business. Every year, billions of dollars change hands as construction projects are undertaken and completed. While each building project is unique, all are multi-faceted endeavors that often require products and material, tools and equipment, human resources, subcontractors, facilities, and capital. Even before the first stake is in the ground, plans and construction documents are created, surveys are conducted, permits are obtained and required resources are allocated. When you consider the complex nature of construction projects, along with the monetary implications, relying on a simple handshake to “seal the deal” is far too risky. Conflicts can quickly arise that could lead to costly setbacks and unresolved disputes, which is why formalizing the agreement in a well-drafted contract is imperative. A contract defines the rights, obligations, and duties of all parties involved. They are also legally binding and enforceable by law – protecting you and your business by minimizing risk and any financial repercussions often associated with disputes and delays.
Contracts help avoid costly problems by providing clarity and structure to the work and the business relationship, thereby removing any ambiguity, or misunderstandings that could lead to conflict down the road. Key “must-have” elements of a solid construction contract required to minimize the likelihood of financial or emotional conflicts, while preserving your reputation as a credible company, include:
1. Project Scope of Work, Roles & Responsibilities
This is the heart and soul of any contractual relationship. Descriptions of the work to be performed needs to be succinct, covering all matters associated with the work, including procedures, processes, quality of materials, warranties, permits, licences and any regulatory compliance requirements. Changes in scope of work also need to be covered.
2. Cost & Payment Terms
One of the primary reasons contracts are so important in construction is that they set prices and bind the contractor and the project owner to payment. The contract should outline which party is responsible for paying construction costs associated with land acquisition (if required), permits, licences, rights-of-way usage/grants, or other costs. Payment terms need to be clearly specified, including exact schedule for payment, terms, and conditions of payment, along with any milestone payment requirements and amounts to be paid. Scope of work changes that affect the cost of the project should also be documented under this section to protect each party from either arbitrary cost increases or losses.
3. Timeframe to Complete the Work
It’s important to ensure that the schedule of work is crystal clear and that all parties are aligned. Document agreed upon start and end dates, as well as provisions for unexpected delays outside the control of the project team such as supplier shortages, permit delays, or disruptions caused by extreme weather.
4. Dispute Resolution
The construction business carries some risk and despite best efforts, conflicts can arise. By including a dispute resolution clause these conflicts, misunderstandings and differences can be worked out fairly using the mechanisms set out under this clause.
5. Termination Terms & Conditions
Specify the circumstances under which a contract can be terminated and the effect of such termination on payment and other obligations. Depending on the language used, a termination clause sets out how, why and when a contract can be terminated – examples of “just cause terminations” may include breach of contract, insolvency, misconduct or incompetence.
Before any contract can be formalized, it’s vital that all parties to the agreement are aligned and on the same page. Although the Canadian Construction Documents Committee (CCDC) provides standard contracts, forms and guides, it’s advisable to work with a lawyer or construction attorney to ensure the interests of all parties are represented. These professionals can also spot any flaws or errors in any draft contract that you created, which could potentially spell trouble for you and your business.
At Vexxit, we offer a wealth of resources to support your business – if you need help drafting a contract or simply need advice, we can match you with a lawyer perfectly aligned with your needs. The best part? It’s free to match.